EBITDA+ The Deal.
Selling a business. Doing the deal!
This is the forth post in our series outlining Morgan Shaw Advisory’s, EBITDA+ SIX STEPS TO SUCCESS™. Our proven methodology for successfully selling a business and enabling business owners to engineer their own $30 million exit.
Whilst already a well-established financial metric, also widely used to value businesses, in this context EBITDA+ SIX STEPS TO SUCCESS™ stands for:
The Deal
Due diligence
After the event.
By now you will understand the gap, have a plan in place to bridge it and have provided buyers with enough information to answer their questions. This enables any buyer to value the business, determine if they want to submit an offer and what they are prepared to pay.
Whilst you may have potential acquirers engaged in a process and wanting to proceed to the next stage, at this point they haven’t done their due diligence, so lack the level of detail they need to make a legally binding offer.
What they will be submitting is known as a Non-Binding Indicative Offer (NBIO). This needs to be an accurate portrayal of the offer, but it’s not a long document (only 2-6 pages) and it is drawn up by the buyer, not a lawyer. The signed NBIO forms the commercial basis for the Sale and Purchase agreement which will be drawn up by the lawyers at a later stage in the process, once due diligence is completed.
Though it is not legally binding, an NBIO should be taken very seriously by both parties. It will indicate the financial value a buyer is prepared to pay, the structure of the deal and any key terms or conditions they require as part of their offer.
If the Initial Information provided was accurate then the price detailed in an NBIO should not change through the Due Diligence process. If an owner agrees a price in an NBIO, its highly unlikely they’d be able to negotiate a higher price later in the process, unless circumstances change – such as a major contract win.
This is the time then, for an owner to push hard for the value and structure of the deal. After all, it’s better to discover at this stage any complexities that may be part of a final offer, rather than later in the process.
Regardless of whether a business owner is a confident negotiator, it’s an advantage to any seller to engage a professional advisor to lead the sale process and negotiations on their behalf. You only get one shot at maximizing the upside, and engaging a professional allows owners to participate in the negotiation at strategic points, where they and the advisor can play ‘good cop-bad cop’ if required.
Selling a business is emotional for any owner and the deal stage can be extremely stressful. Particularly, when faced with a buyer trying to find flaws in the business you’ve spent years, blood, sweat and tears building, in order to minimise the price they’ll pay.
This can be upsetting and even insulting for many owners. But an independent advisor can remain detached and take the emotion out of the negotiation. This can be a great advantage in securing a successful transaction and achieving the highest price.
If a business has been as well prepared as we recommend it should be and the process has been solid, then the negotiation is just the end result of a buyer valuing the business. It’s not the main event.
Generally, at MSA we avoid reaching face to face negotiation with a potential buyer until we’re confident we know what they are likely to offer and that can only be achieved by going through all the hard work in the process beforehand. Then, the deal and be made!
In the next blog we’ll be looking at due diligence. To ensure you don’t miss a post in this series and to get on the pre-release list for an eBook giving you all the steps and more… just click here.
Corporate advisors, like Morgan Shaw, keep the sales processes effective and efficient, whilst keeping everyone involved safe and sane. Working with a professional can significantly increase the value in your business and will ultimately result in a more favourable transaction, improve sale terms and achieve a higher purchase price.
To understand how you could engineer your own $30 million-dollar exit, learn more about our EBITDA+ SIX STEPS TO SUCCESS™ connect with the Morgan Shaw Advisory team here.